Transcript
Barry Quirk
Okay, thank you very much indeed. Just to place where I’m from, I’m the chief executive of an organisation that serves local people. It’s about 300,000 people we serve. About ten years ago we employed 6,000 people to do that. We now employ less than 4,000 and I’m going to talk about the pressures on the public sector to buy supply better and how it needs to think about design and the use of innovation in that.
Now, just to give you some concept of the scale of supply and the difference of supply, we spend a lot of money a year building new schools, building social housing, building leisure centres, refurbish them, building roads and building old people’s homes. They’re very different things. We don’t just say, oh, there’s all this capital, let’s put it together, put it out and that’s it.
We also buy a lot of other services; social care services, early years services for young people, community services, parks and leisures are run by the private sector. A lot of investment in our private sector, a lot of our cultural offer, most of the cultural offer is made by the private sector; environment, IT, accountancy, audit. In other words, we’re buying lots of services, we’re not just employing people to deliver them. Most of what we do is buying services and we have to think about how we buy better.
And is what we’re doing encouraging growth or discouraging growth and how can we be better at organising our purchase, our supply management better? And I think to do that, we’ve got to understand, first, two things; the ecology of supply and the economies of supply. What do I mean by the ecologies of supply?
Well, I started as a biologist many years ago and there were two principles of natural selection that Darwin dreamt up that still apply now. The first is, when there’s a drought around a lake, those plants that survive are the most resilient. They’re not competing with other plants, they’re competing against the environmental change.
The other natural selection is the competition between hyenas and lions for a zebra. That is competition between people. We must know the difference between competition and the ecology of our supply markets because they are very different. Some are operating in very dry, drought-ridden markets and in some, there really isn’t competition between people.
And what we don’t want to do is simply to transfer a public sector monopoly into a private sector monopoly. We want to diversify supply so that we’re encouraging better conditions and reaping the best from competition.
And one of the things that we’re being encouraged all the time is to find economies of scale, to put things together so that we can get the benefits of economies of scale. Well, as I’ve shown you, we buy lots of different things. We collect people’s rubbish and we take some people’s children into care. We don’t do it on the same round. We organise it differently.
Specialists collect people’s rubbish. Other specialists encourage them to recycle and very, very important specialists decide whether or not children are at tremendous risk. So we do very different things. Scaling things together and putting it together isn’t necessarily sensible.
We could, of course, scale some service sectors together so we’re working with a neighbouring authority to scale together our purchase of road resurfacing but we’re not saying, let’s put in with that building schools or building something else. And we need to think about all of the benefits that you can get from greater economies, not just from scale but from scope, so to whom are we providing services to? And could we be providing others to them or could there be other ways we could cross-sell to encourage them to be more independent of public services?
Should we be managing much more in terms of economies of flow and what about economies of penetration where we know an awful lot about individuals form their customer information, we can share much more information with them?
But critically, when we are trying to encourage growth and we’re buying, we’re not just buying the cheapest. We’re not just encouraging a race to the bottom. We want the people we’re, that are providing services to be sustainable. We all remember the dot com crash. Lots of people had great ideas. Many of them; there was no revenue model or business model to support these ideas. What you need for companies to be successful is they need a clear business model, a clear operating model and a clear model of capabilities to deliver both, otherwise we are purchasing services from people who are unsustainable.
And we’re having to think a lot about that in the current environment because we’re encouraging more and more not-for-profits, community-based organisations, mutual and socially-owned enterprises that are wanting to deliver public services. But actually, the issue for them is, are they sustainable?
My own organisation, we’ve transferred four libraries to community enterprise, social enterprise that are running these library services and actually running other services from within the asset. We’ve transferred an asset to them and they’re providing services. Key issue is, are they sustainable in the long run?
Because it’s libraries, the risks are quite low. If it was a care home, the risks would be quite high so we have to think about the business and the operating model. And anyone who’s familiar with the problems that there is nationally with the residential care home sector will know that you must have a sustainable business and operating model, otherwise it’s just very good ideas.
We also, I think, need to differentiate between innovative procurement and procuring to innovate. A lot of people who are in the procurement area are encouraged to be innovative in what they do, to innovate, to procure in new ways. But we need, I think, to understand where innovation comes from and we particularly need to understand it in relation to public services.
Now, haircuts is a routine service process. The average haircut in London costs 40 quid. Now, I can see that some of you have spent much more than that and others somewhat less. The average time it takes to do a haircut has not changed in ten years and in ten years’ time it will not change again. And it takes an average of 40 minutes.
A hip replacement takes four hours. It costs an average of £10,000. Is it done differently now than it was ten years ago? Yes. Is it going to be done differently in ten years’ time? Yes. Why is that? Because there’s the opportunity for clinical and technical innovation in the way that, in haircuts, the only addition is colouration, embellishment and extensions – which, as you can see, I haven’t benefited from.
So we need to understand, when we’re talking about public services, do they have the character, what is the nature of the service, is it more about a haircut or more about hip replacement? In other words, where are the cost drivers and where are the opportunities for innovation in that service? Because the opportunities actually happen at the service interface, exactly as we’ve just heard. It’s about collaborating, co-creation with the user and therefore it’s the service provider who is the innovator, not the procurer.
And it’s absolutely crucial that public services recognise that actually, they need to encourage service innovation for better service outcomes and improved public value. And I’ll give an example of how we’ve done that. We’ve encouraged external providers to work with 600 ex-offenders that come out of prisons back into our community to see if they can reduce their re-offending rate. Well, all we’ve simply done is we’ve said – I don’t know if people are familiar with the ogre classification.
You mentioned four types of people. We have 25 different types of ex-offenders. I suppose, as there’s 12 signs of the zodiac, there’s probably more than 12 types of anything but an ogre classification classifies the risks of offending.
And what we’ve said to the provider is, we’ll give you more money for working with the more difficult people, you work it out. In other words, the onus for innovation is on them. And the contract is not a straitjacket, not a way of expecting people to do things and just delivering it. It should be much more of a loose overcoat where giving incentives to providers to improve services that they can work out with the service provider.
And to do that, I think, public organisations have to have the proper culture that feeds through their organisation of their in-house staff and how they procure, how they buy services. And that culture, yes, must be disciplined and ordered and rigorous and must involve measurement but it also must have space for creative imagination that’s required to design services better.
Thank you very much.